Amazon China in talks to merge with NetEase Kaola

According to data firm Analysys, Amazon’s market share in China’s B2C market reached its peak at 15.4% in 2008 before slipping to less than 1% in 2018.

Feb 22, 2019 by The Passage Team

Amazon is reportedly discussing a merger for its China business with Chinese cross-border e-commerce site Kaola, owned by gaming company NetEase. A preliminary stock swap deal was in discussion during the end of 2018 but the negotiations had been difficult.

NetEase refused to comment on the deal, but Amazon responded to Chinese tech portal Iyiou saying “wise men ended rumors.”

Amazon had entered China in 2004 by acquiring local bookseller Joyo. Last year its market share in China’s e-commerce market was languishing at less than 1%, according to data from eMarketer. Previously too there were rumors about Amazon selling its China unit or merging it with, for example, the MNC LeEco in 2016 and technology firm Sinnet in 2017.

Though Amazon is the global pioneer in e-commerce and has made it big in many other countries, it struggles to make headway in the world's second-largest economy, where it is competing with dominant players like Alibaba and JD, who together take up a 75% market share. According to data firm Analysys, Amazon’s market share in China’s B2C market reached its peak at 15.4% in 2008 before slipping to less than 1% in 2018.

Then cross-border trading, a market that started rising around 2013 in China, became a new growth point for Amazon. It began overseas e-commerce business in China in 2014. According to Analysys, Amazon had a 6% share in China’s import market in 2018, following 29% of Alibaba’s Tmall Global and 22.6% of NetEase Kaola.

The current deal has reportedly been initiated by NetEase. According to a report, Kaola would be separated from NetEase, and Amazon would take shares in Kaola and go for an independent IPO.

Kaola, the imported products shopping platform born in 2015, sells more than 5,000 brands from 80 countries, covering apparel, household appliances, luxury goods and others. If the merger is completed, the co-venture could pose a challenge to existing players. Judging from the combined market share and annual Gross Merchandise Volume (GMV), Amazon China could also be listed among the top three in China’s e-commerce — led by Alibaba, who owns Taobao and Tmall, and the Tencent-JD.com alliance, from which come Pinduoduo, Vipshop and Mogujie.

The reality may not be as rosy since NetEase is still way behind the top giants in terms of market share, logistics and supply chain. Besides, Alibaba showed resolution in the overseas market when it made Tmall Global an independent business group in its company restructuring in November 2018. Tencent is also yet to explore its advantage with social network traffic in the e-commerce area.

The Passage Team

The Passage is committed to creating in-depth content over technology industry across Asia with a focus on emerging startups in the technology, healthcare, education, food, tech, travel & mobility segments.